Keynote Address of CDFI Fund Director Donna Gambrell at the NCUA Risk Mitigation Summit

August 7, 2008

I would like to thank the National Credit Union Administration and the leadership of Vice Chairman Hood for holding today’s Risk Mitigation Summit here at the Federal Reserve Bank of Chicago. There are many challenges facing credit unions and the members you serve – turbulence in the housing market, credit market strains, and higher prices for many goods and services.

I hope today’s Summit will contribute to the continuing health and viability of the credit union industry as well as further the financial services and products you can deliver to distressed communities across the nation.

Capital For Distressed Communities

The CDFI Fund has a very unique mission to expand the capacity of CDFIs to provide credit, capital, and financial services to underserved populations and economically distressed communities. Through the CDFI Program, CDFIs receive Financial Assistance awards to engage in a wide range of economic development activities. Financial Assistance awards enable CDFIs to leverage private capital to respond to demand for affordable financial products and services in their respective communities.

These investments include, among others, small business lending, affordable home mortgage products, financial education, and home ownership counseling; they are also used to develop innovative solutions to meet the credit needs in awardees’ communities.

Credit unions are an important part of the CDFI community - they make up approximately 18 percent of our over 800 certified CDFIs, which is the second largest industry sector, after loan funds. In 2007, we approved the certification of 16 credit unions as CDFIs, more than double the number certified in 2006.

To those of you who do not represent certified CDFIs, I encourage you to examine CDFI certification because our funding programs could be beneficial to your organization and, in turn, your communities.

Through Financial Assistance and Technical Assistance awards, the Fund invests in CDFIs that demonstrate the financial and managerial capacity to provide affordable and appropriate financial products and services that positively impact their communities, are viable financial institutions, and leverage Fund dollars effectively.

Credit unions have been at the forefront of providing these types of products and are proven, low-cost alternatives to predatory lenders. Innovative products offered by credit unions include such credit building loans, small loans with an automatic savings feature, and "first chance" accounts, among others.

Financial Education

As many of you know, CDFIs provide consumers with financial services and products that are designed to bring underserved persons into the financial mainstream, building wealth on affordable terms. I am proud that many CDFIs have taken it upon themselves to mitigate their risk by sound financial lending and innovative financial education programs.

Financial education is preventative in nature and one of the best approaches to help people avoid difficult situations from the start. For reporting year 2006, our data show:

• 90 percent of the affordable lending products reported by CDFIs were fixed long-term loans;
• 58 percent of CDFIs provided financial education services; and
• 39 percent of CDFIs provided homeownership counseling to first-time homebuyers.

These education and counseling services increase consumer awareness and help individuals make informed decisions about available financial products. For underserved people, who by definition are often not using many mainstream financial services, the barriers to understanding complex financial products are high.

Financial knowledge makes people better informed consumers. And when they understand the terms of a mortgage loan, they are better able to compare the costs and benefits of different products and better positioned to make long-term decisions that advance their financial goals.

CDFI Fund's Own Risk Assessment & Portfolio Management

Managing risk is not an option, it’s a prudent business practice for all organizations. The CDFI Fund is in the process of internally developing a new risk mitigation strategy. Our risk assessment involves analyzing available data to identify where to focus scarce resources: an organization’s financial status, compliance with regulations, and adherence to CDFI Fund Program goals and objectives.

We have also begun to examine how risk assessment and portfolio management can be further utilized to manage the CDFI Fund’s grants, equity investments, loans, shares, and deposits -- from closing an Assistance Agreement through the final evaluation date set forth in that agreement.

Let me outline a few of our key objectives:

• Demonstrate stewardship to ensure effective use of all awards;
• Provide a comprehensive analysis of an awardees portfolio health;
• Provide accountability – verification of data, demonstrate reliability of information provided;
• Identify variables for good performance;
• Provide an opportunity to give pre-emptive assistance to awardees;
• Improve communication and become better, more effective partners.

There are many benefits to a comprehensive portfolio management approach. This will enable the CDFI Fund to become a more effective partner with the CDFIs in the field, and to gather greater information on the results of our programs in the community.

The monitoring is designed to prevent, detect, and correct the challenges faced by awardees, and is equally geared toward assessing the quality and volume of the services provided, and the integrity of the data the awardees submit to document their performance.

I am confident that these steps will mitigate risks to the CDFI Fund and ensure the continued success of the CDFI Fund’s programs.

CDFI Credit Unions

Credit unions continue to play an important role in providing financial services and products to distressed communities. Just last Friday, I participated in the celebration of Hope Community Credit Union’s ("HOPE") first Tennessee-based branch. HOPE is a certified-CDFI sponsored by the Enterprise Corporation of the Delta (ECD). This new branch will enable HOPE to provide a full range of its affordable financial services to residents of the greater Memphis area and provide affordable alternatives to predatory and subprime lenders.

To date, ECD/HOPE has received just over $10 million in awards under the CDFI Program and $30 million in New Markets Tax Credit allocations from the CDFI Fund. Since 1994, ECD/HOPE has provided more than $1 billion in financing to entrepreneurs, homebuyers and community development projects, benefiting more than 40,000 individuals in the Delta, Hurricane Katrina-affected areas and other distressed communities across the Mid South.

Closing

I also hope all of you will look at the CDFI Fund’s programs as a way to increase your organization’s capacity to support economic and community development in your communities. Thank you.

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